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The New
Joblessness
By Roger Lowenstein July 26, 2009
The U.S. economy is not only shedding jobs at a record rate;
it is shedding more jobs than it is supposed to. It’s bad
enough that the unemployment rate has doubled in only a year and
a half and one out of six construction workers is out of work.
What truly troubles President Obama’s economic advisers
is that, even adjusting for the recession, the contraction in
employment seems way too high. As one administration official
said, “This has been a very steep job loss.” One proof,
he added, is that the country is deviating from the standard (among
economists) jobs predictor known as Okun’s Law.
In the 1960s, Arthur Okun, a prominent economist, claimed to
have discovered a mathematical relationship between the decline
in output (that is, goods and services produced) and the rise
in unemployment. It held up pretty well until recently. But this
time around, although the decline in output would have predicted
a rise in unemployment to 8 percent, the actual jobless rate has
soared to 9.5 percent. So this recession is killing off jobs even
faster than the things — like automobiles, houses, computers
and newspapers — that jobholders produce.
The Federal Reserve now expects unemployment to surpass 10 percent
(the postwar high was 10.8 percent in 1982). By almost every other
measure, ours is already the worst job environment since the Great
Depression. The economy has shed 6.5 million jobs — nearly
5 percent of the total, far outstripping the 3 percent that were
lost in the early ’80s. Economists fear that even when the
economy turns around, the job market will be stagnant. Keith Hall,
the commissioner of the Bureau of Labor Statistics, sums it up
as “an ugly picture out there.”
Explanations for the collapse of the great American job machine
begin with the marked absence of what is called labor hoarding.
Usually during recessions, firms keep most of their employees
on the payroll even as business slows, in effect stockpiling them
for better days. In the current downturn, hoarding seems to have
gone into reverse. Not only are firms laying off redundant workers,
but they seem to be cutting into the bone. Hall says the absence
of hoarding means that firms do not expect business to pick up
soon. This is supported by other evidence, like a doubling in
the number of involuntary part-time workers (there are nine million
of them) and the shrinking workweek, now 33 hours — the
shortest ever recorded. Presumably, before companies start to
rehire laid-off workers, they will ask their current employees
to work more.
Those who hope for a rebound argue that employers, frightened
by the financial shocks and the credit crisis of last fall, effectively
panicked. That is, they cut deeper than necessary. And that may
be.
But layoffs are only part of the story. The problem isn’t
just that so many workers have received pink slips but also that
companies are failing to hire. And this, unfortunately, has been
a trend for most of the past decade (unnoticed, perhaps, because
the mortgage bubble was papering over latent weaknesses). At the
end of the Clinton era, which also marked the end of a decade-long
boom, companies that were opening or expanding operations added
nearly 8 workers for every 100 already on the payroll. During
the recession of 2001, the figure dropped to 7 per 100: optimistic
firms were a bit less optimistic. The surprising fact is that
when the recession ended, the percentage stayed at 7. “We
never got our groove back,” asserts Mark Zandi of Moody’s
Economy.com. In the current recession, the rate has fallen to
6 per 100.
It’s hard to give a definitive explanation for this trend,
but among the reasons are a decline in innovation in the aftermath
of the tech boom, leading to fewer new businesses, and the aging
of the population. More people have dropped out of the work force,
and a smaller work force tends to dampen job totals. The percentage
of adults who are working has fallen from 64 at the end of the
Clinton era to only 59.5 now. Some of those dropouts are retirees,
but some may be responding to the economy’s declining dynamism.
Traditionally, it was a mark of Americans’ resiliency that,
when times were tough, they relocated from state to state and
region to region. Now, according to the Census Bureau, mobility
is at an all-time recorded low. Perhaps people with underwater
mortgages cannot afford to move. Perhaps the areas they used to
move to, typically the Sun Belt, are too devastated by foreclosures.
But the vaunted ability of the U.S. economy to renew itself seems
a little tarnished. Maybe it’s no accident that this time
around, folks on the unemployment line are staying there longer.
In terms of its impact on society, a dearth of hiring is far
more troubling than an excess of layoffs. Job losses have to end
sooner or later. Even if they persist (as, say, in the auto industry),
the government can intervene. But the government cannot force
firms to hire. Ultimately, each new job depends on the boss’s
belief — or hope — that sufficient work will materialize.
It’s a bit of black magic also described as confidence.
Over the years, it is why America has not only attracted immigrants
(whose arrivals are now slowing) but also generated more opportunities
and — favorite word of politicians — hope for those
born here.
The administration’s tilt toward so-called sustainable
new jobs, in green energy and such, shows that it understands
what is at stake, both for the country and for its political fortunes.
Whether its plans will bear fruit is, of course, another matter.
Along with double-digit unemployment, the country is facing a
second potential scare headline: falling wages. Even during recessions,
businesses don’t like to lower pay, because it reduces morale.
But layoffs are also a downer. And in this recession, employers
ranging from the State of California to publishers (including
this newspaper) have cut back on pay. In effect, job losses have
been so severe that businesses have been forced to spread the
pain. In June, overall wage growth was zero. Zandi thinks the
United States could see negative wage growth.
How would Obama, not to mention Congress, respond to declining
employment and falling wages? The pressure for another stimulus
(and greater deficits) would be intense. So would that for demagogic
solutions like trade barriers. Robert Reich, the former labor
secretary, says most lost jobs are not coming back. The huge question
is when — or whether — new ones will take their place.
Roger Lowenstein, an outside director of the
Sequoia Fund, is a contributing writer for the magazine.
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